If you know your loved one who recently died intended to split their property between their surviving spouse and their children, you may already have an idea of what you might inherit and its overall value. However, the process of handling the estate often results in costs that can impact the overall value of the estate and what beneficiaries can receive from it.
If you love someone who lived and died in Texas, Texas probate law and federal estate laws will apply to the assets they want to pass down to you and other members of your family. Will the probate process negatively impact the value of the estate?
The first step involves repaying creditors which can consume much of the estate
Even if your loved one was the only person responsible for a debt, that doesn’t mean that the debt disappears when they die. The assets in the estate are subject to liquidation in order to repay all creditors with an outstanding debt owed when your loved one died.
Credit card companies, medical facilities and even private debt holders all have a claim against the estate. It is the job of the executor to appropriately distribute assets to creditors before they distribute to heirs and beneficiaries.
Settling taxes can also reduce the assets available
Even after death, there may still be taxes due on behalf of your loved one. The executor for the estate will have to file a final tax return and, depending on the value of the estate, may potentially also have to pay taxes on the assets and the estate itself. Thankfully, while the income tax return is necessary regardless of the size of the estate, only estates worth millions of dollars are subject to federal estate taxes.
Probate itself can cost a bit of money, especially if you or other beneficiaries choose to fight with one another or challenge the administration of the estate. In other words, although you may have an idea of the value of the assets owned by your loved one and left to you, you shouldn’t presume that you will inherit the full value until the estate passes through probate successfully.